Apache Ditches Alpine High After $3B Writedown

Texas Mineral Rights Reeves County, TX
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From Rigzone today, it sounds like the southwest reeves boom in the Alpine high play is going to screech to a halt…

Apache Ditches Alpine High After $3B Writedown

Apache Corp. is officially calling it quits on a highly publicized but disappointing shale discovery in West Texas after vehemently defending the play’s prospects for about three years.

The Houston-based company posted a roughly $3 billion writedown on its Alpine High project, a find from 2016 that fizzled when it turned out to hold more natural gas than oil. Apache will instead focus on offshore riches in Suriname, where the explorer recently struck crude and enlisted French oil titan Total SA as a partner.

“Apache has no current plans for future drilling at Alpine High,” Clay Bretches, chief executive officer of Apache’s pipeline spinoff, Altus Midstream Co., said in a statement.

The discovery was announced in September 2016 to much fanfare and claims the field held 3 billion barrels of crude and 75 trillion cubic feet of gas. But it quickly became apparent that that corner of the prolific Permian Basin was far richer in natural gas and its byproducts than more-valuable oil. The Alpine High became even more worrisome for investors as gas supplies in the region ballooned and prices cratered.

Until recently, Apache executives defended the Alpine High, saying in May that investors didn’t yet “have an appreciation for the potential cash flow generation from the liquids play at Alpine High.”

Star Geologist

But roughly five months later, the star Apache geologist who led discovery of the field abruptly left. At the time, the departure of Steven Keenan, Apache’s senior vice president of worldwide exploration, raised red flags for the company’s other high-profile prospect – offshore Suriname.

Apache calmed investors who were nervous Suriname would be a bust last month when it disclosed a major discovery. The announcement came shortly after Apache brought Total aboard to help develop the project on Suriname’s Block 58.

“We are currently drilling the second well on Block 58, Sapakara West-1, and are encouraged by what we’ve seen so far,” Apache CEO John Christmann said Wednesday in a fourth-quarter earnings statement.

The company will now shift its capital spending to focus on Suriname rather than on “near-term growth opportunities,” Christmann said. Altus Midstream, meanwhile, will look for new customers to fill its pipes.

“We are aggressively pursuing third-party volumes to replace declining production from Alpine High and maximize throughput at our Diamond processing facility,” Bretches said in Altus’ fourth-quarter earnings statement.

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Well that is discouraging. Wonder if this has any bearing on existing lease operations and pipeline efforts Apache is involved in?

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Pure speculation but my guess is the existing lease operations remain largely unchanged. The wells that can economically produce will continue to do so, no reason to cut off a cash flow stream that is perpetuating leases. And there is no market to sell those wells really, so they will likely hold onto them. On the midstream side it sounds like they will try to chase 3rd party volumes to put in the pipes as their alpine high wells decline. Hard to tell how that plays out. My hunch is any future or planned pipeline efforts not already in place stop…

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seems reasonable speculation. Wonder about the operations they have built in Pecos. Seems like they have a pretty nice facility on the west side of the town. I am guessing since we are getting royalty payments for our natural gas, we are already on a pipeline network. My father, many years ago, who owned a seismograph drilling company at the time, used to tell me he expected natural gas under the family property near Toyah, but did not hold out much hope for oil. To this day, I still marvel at Apache using all of that fanfare to tout the Alpine High, when 10 years earlier geologists were referring to the Alpine High in academic writings. Probably couldn’t find that report if I tried now.

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Here is the link to the conference call. The CEO indicates little or no capital allocated to Alpine High, and in the questions indicates they will not be trying to keep leases.

Unlike a lot of companies, Apache is not one that charged up the hill and then charged back down the hill. They fought the good fight, spent a lot of money trying to make a go of it, but got caught in a extended bad market for gas and NGLs.

Link

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I think this is a very good example of why “Never sell minerals” may not be sound advice. How much did mineral values fall in the Alpine High area immediately following this announcement? Will other shoes drop elsewhere in the Permian and beyond? Remember the Cline Shale?

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I see your point AJ but to be honest mineral prices never got very high for the Alpine High. It is more of an example that not all parts of Reeves Co have the same perceived value.

While I would regularly get offers on my northern Reeves minerals, I have never received an offer on Alpine High. In fact I have attempted to market some acreage to sell there and wasn’t able to do it for any price over a couple thousand per acre.

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Online article 1/24/19 in Shale Magazine describes Alpine High, 336,000 acres (avg lease bonus $1,200), discovered 2014, announced approx September 2016, thought to have 13 producing intervals 5,500’, 180 wells & 8 rigs, formed Altus midstream with 150 miles of pipe plus processing & cryogenic plants.

Also, Cimarex abandoned 12,841 net acres in “South Reeves County” in 3Q19, company said little about it, Cimarex continues drilling heavily in north Reeves and Culberson County in 2020.

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Travis_Rall, As Apache seems to have pulled the plug on Alpine High, do you think any offers you might now generate on your S. Reeves minerals would be less than the couple of thousand per acre which you received earlier? A January 2020 Houston Chronicle article mentions, "Sellers may be coming to terms with a market more accepting of $10,000 per acre as opposed to the $30,000 to $50,000 per acre seen at the peak of ‘Permania’ in 2016-2017, he said.” Falling tide?

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FYI, a bit more from Apache’s earnings call: CEO Christmann said Apache leases 240,000 acres in Alpine High, will allow 200,000 acres to expire over three years unless NGL prices recover. Apache said the number of wells they drilled in Alpine High is low 200s with approx 200 on line.

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Exactly, AJ11. I’m sure many owners have now “missed the boat” by holding onto their Alpine High minerals. Gotta know when and where to sell or you get left with pennies on the dollar compared to “peak” offers.

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As part of a family who has been receiving royalties, but unfamiliar with the impact of this action by Apache. Is expected that those of us with producing NG well will see those shutdown?

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If the wells are producing and are generating positive cash flow, then they’ll likely remain online.

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after all of the money spent on these wells, seems hard to fathom them just walking away from them. But I guess losses on the books are nice offsets as well. Between pipeline, processing units, etc. they put a lot of money into our 6 wells (at least from a layman’s perspective).

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Apache shut in some dry gas production last year due to extremely low and negative gas prices, and is likely to do so again this Spring, as gas prices are forecast to go negative again in the Permian. However, if prices are okay, the cost of operating a well is usually pretty low, and I would doubt they would simple plug wells as long as they can make money operating them.

Some day, when balance returns to the gas market, interest will come back in the area. The problem is the associated gas produced with oil wells continue to perpetuate the glut, and the Marcellus wells, which are prolific, have flooded the northeat and midwest with supply. We are now shipping it out of country, but our glut is now spread to a worldwide glut of gas. However, as gas continues to be one of the cheapest and least carbon producing fuels around, the long term looks good. The big question - how long is that term and do you have the patience to ride it out? Remember, many of these families held onto properties in Reeves for 90+ years. I don’t think they have a short time horizon in investing.

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